More than a decade after it was signed, India-Japan FTA to be reviewed

While India is working on initiating negotiations with Japan for a review of the deal, called a comprehensive economic partnership agreement (Cepa), the Japanese are also open to a review, one of the persons mentioned above said, requesting anonymity.

“Trade between both the nations is on the track. Certain issues need to be reviewed and it will be done by sitting across the table during negotiations," the person mentioned above said.

“The plan is to review the Cepa soon, possibly within the first 100 days of the new government coming into power, as it is a priority," the person added.

India has long pursued its demand for a review. In July 2023, commerce and industry minister Piyush Goyal said India has asked Japan and South Korea to renegotiate the respective trade deals to make trade more balanced and equitable.

However, the two reviews are yet to take place.

India and Japan signed the Cepa in 2011, which extended duty-free and low-duty market access for most items for both countries.

However, the trade balance has been mostly in favour of Japan since then, with India seeing a higher trade deficit than its East Asian counterpart. Indian exports to Japan, in value terms, are much lower than Japanese exports to India.

During FY23, India’s imports from Japan stood at $16.50 billion, while Indian exports to Japan stood at $5.47 billion, according to commerce ministry data.

Japan’s exports to India have doubled since 2010-11, when it stood at $8.62 billion, while India’s exports to Japan have largely remained static.

The commerce ministry spokesperson and the commerce secretary’s office didn’t respond to emailed queries.

“Among other things, the Indian side wants the Japanese side to relook at some of the non-tariff measures, which have made it tough for Indian companies and MSMEs," the person mentioned above said.

Issues like rules of origin (ROO) and product-specific rules (PSRs) will be discussed in the review, the person added.

Product Specific Rules (PSRs) determine the circumstances in which goods imported from a country, having components or inputs from a third country, are still eligible for preferential tariffs.

According to the World Trade Organization (WTO), rules of origin are needed to determine the national source of a product. “There is wide variation in the practice of governments with regard to the rules of origin," it said.

“While the requirement of substantial transformation is universally recognized, some governments apply the criterion of change of tariff classification, others the ad valorem percentage criterion and yet others the criterion of manufacturing or processing operation," it added.

India’s FTAs with the Asean, South Korea and Japan have led to a significant increase in trade deficit for New Delhi, said Ajay Srivastava, founder of the trade think-tank GTRI.

The proposed negotiations might not significantly increase India’s exports due to the low import duties in partner countries, potentially resulting in India importing more post-FTA, he said.

 

 

 

 

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